TMI Blog2010 (11) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay Sales Tax Act, 1959, (the Sales tax Act) by insertion of the third proviso to section 38(4) of the Sales Tax Act, wherein SICOM or the relevant Regional Development Corporation or the District Industries Centre concerned was to convert the deferred sales tax into a loan and thereafter as per 2002 amendment, fourth provision to section 38(4) of the Sales tax Act by which the earlier 4th proviso was substituted, which provides that where the NPV of deferred tax as may be prescribed was paid, the deferred tax was deemed, in public interest, to have been paid Regarding Capital expenditure Vs. Business income - It is a trite law that the nomenclature given by an assessee to a particular account in its books of account is not the sole test to decide the real character of that account - The other requirement of section 41(1) is that the assessee must have subsequently (i) obtained any amount in respect of such loss and expenditure or (ii) obtained any benefit in respect of such trading liabilities by way of remission or cessation thereof - in this situation, it cannot be construed as remission of liability; because the Sate Government has not waived any of the liability as given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (supra) recently, the Hon ble Jurisdictional High Court in S.I. Group India Ltd. v. Asstt. CIT [2010] 192 Taxman 91 (Bom.); on the question of law Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in completely disregarding the contention of the Appellant that there was no remission or cessation of the sales-tax liability on account of payment of the present value thereof being made to SICOM since the sales tax authorities had not given credit of the said payment against the sales tax liability , has held that one of the requirements spelt out for the applicability of section 41(1)(a) has not been fulfilled in the facts of the present case, therefore, Their Lordships answered the question of law in favour of the assessee. He further submits that since there is no dispute that the facts of the assessee s case and the facts of the S.I. Group India Ltd. s case (supra), and also Sterlite Optical Technologies Ltd. s case (supra), are the same and the Hon ble Jurisdictional High Court while reversing order of the Tribunal in S.I. Group India Ltd. s case (supra) has decided the issue in favour of the assessee, therefore, there is no diversion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee. However, at the same time we find force in the submissions of the ld. Sr. Counsel for the assessee that the question needs to be re-drafted because the present question before the Special Bench starts with the presumption that it is a case of remission. In fact the ld. Sr. Counsel stressed that most of his arguments will be on the facts of the case that no remission at all is involved and consequently is there no benefit as envisaged by section 41(1)(a) of the Act. 5. After considering the facts and circumstances of the case, we are of the view that instead of original question, the following question should be considered by the Special Bench : Whether on the facts and in the circumstances of the case and in law, the sum of Rs. 4,14,87,985 being the difference between the payment of net present value of Rs. 3,37,13,393 against the future liability of Rs. 7,52,01,378 has rightly been charged to tax under section 41(1) of the Income-tax Act, 1961. 6. Briefly stated facts of the case are that the assessee company is engaged in the business of Equipment manufacturing and total project supplier. The assessee company has an industrial unit at Kondhapuri, Tal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. In 2002, Government of Maharashtra brought Trade Circular No. PSI-2002/91/Adm-13/B-1041/Circular No. 39T of 2002, dated 12-12-2002. The subject of this Trade Circular reads as follows : Sub. : Premature Repayment of the amount of deferred taxes by the Eligible Units at Net Present Value (NPV). Trade Circular has mentioned sub-section (4) of section 38 of B.S.T. Act, 1959 which was amended as follows : Provided also that, notwithstanding anything to the contrary contained in the Act or in the Rules or in any of the Package Scheme of Incentives or in the Power Generation Promotion Policy, 1998, the Eligible Unit to whom an Entitlement Certificate has been granted for availing of the incentives by way of deferment of sales tax, purchase tax, additional tax, turnover tax or surcharge, as the case may be, may, in respect of any of the periods during which the said certificate is valid, at its option, prematurely pay in place of the amount of tax deferred by it an amount, equal to the net present value of the deferred tax as may be prescribed, and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid. It was further stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is taken to have been paid to the Government under the deferral scheme. After such deemed payment, the unpaid sales tax is by way of deferral loan and not a trading receipt and, hence, the remission of loan cannot be taxed as income of the assessee. However, the Assessing Officer observed that the Circular relied on by the assessee has been followed in the earlier years in the assessee s case by not making any disallowance under section 43B of the Act in respect of the deferred sales-tax on the ground that under the scheme, the sales tax liability is deemed to have been paid. The Assessing Officer further observed that, at present the real question for consideration is whether the remission of deferred sales tax results into taxable income or otherwise. Therefore, the Board Circular referred by the assessee is confined to the treatment under section 43B and, hence, not at all relevant. He further observed that, the scheme provides for three categories of incentives. The First Category is sales tax exemption which is not applicable to the facts of the present case. The Second Category is where the sales tax liability is deferred and is allowed to be paid beyond the due dates specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on by the assessee observed that the combined reading of documents, proves beyond a shadow of doubt that appellant had collected sales tax which was not paid earlier, which remained as deferred sales tax liability, it was never converted into a loan and even if it is presumed that deferred sales tax liability was converted into loan, the amount was paid at Net Present Value of the deferred sales liability resulting into remission within the ambit of revenue/trading receipt/expenditure and would attract provisions of section 41(1) of the Act. He further observed that in the present case the NPV means that Rs. 3,37,13,393 is same as Rs. 7.52 crores after 12 years so far as sales tax Department is concerned, then why the appellant has taken the amount of Rs. 4,14,87,985 to reserve. The ld. CIT(A) while distinguishing the decisions relied on by the assessee, upheld the addition made by the Assessing Officer. 11. At the time of hearing the ld. Sr. Counsel for the assessee after referring to the facts of the case in the light of the salient features of 1983 Scheme and 1988 Scheme appearing at pages 102 to 116 and 117 to 150, 153, 151 and 101 of the assessee s paper book further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther submits that the fourth proviso to section 38(4) of the Bombay Sales-tax Act provides that the Eligible Unit to whom an Entitlement Certificate has been granted for availing the deferment incentives may prematurely pay in place of the amount of tax deferred by it an amount equal to the net present value of the deferred tax and on making such payment, the deferred tax shall be deemed to have been paid. Pursuant to the said fourth proviso, Trade Circular dated 12-12-2002 (Pg. 174) laid down the procedure of prepayment of the amount of deferred sales-tax (para 3.1) as per the rates of discounting mentioned in the annexure (Pages 178-179). Circular No. 20T of 1995 clarifies that the prepayment provision is in the interest of the revenue. The Appellant opted for the prepayment as per the fourth proviso. The summary of the prepayments is at Pg. 101 and the actual prepayment certificates are at Pgs. 188-189 and 207-208. Accordingly, the liability of Rs. 7,52,01,378, which was payable after 12 years in six equal instalments, was fully discharged by payment of Rs. 3,37,13,393 being the present value thereof. Section 41(1) is attracted where a liability for payment of Rs. X which is pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scheme is so far as are relevant are the same as under the 1983/1988 Schemes. The form is not relevant but only that it is an incentive for dispersal of industries and setting up of industries in the less developed parts of the State. According to him similarities between the 1979 Scheme (with which Reliance was concerned) and 1983/1988 schemes (with which the present case is concerned.) are as under : 1979 Scheme 1983 Scheme 1988 Scheme Object Para 22, Pg. 298 Pg. 102 of the Page 119 of the (19th line from PB (Preamable) : PB (Preamable) : top) of the in order to in order to Reliance Report achieve dispersal achieve dispersal Under the of industries of industries Maharashtra outside the outside the Scheme, the aim Bombay-Thane- Bombay-Thane- was to disperse Pune belt and to Pune belt and to the industries attract them to attract them to outside the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s outside the Bombay-Thane-Pune belt. In Reliance Industries Ltd. s case (supra), the subsidy opted for was exemption from payment of sales-tax and the sales tax deemed to have been collected by assessee (which was not to be paid to the Government) was held to be on capital account or in the capital field. It was held that the sales tax ought to be regarded as paid to the Government and returned to Reliance in the form of a subsidy (in the present case a subsidized loan). So also the sales tax collected in the present case was on capital account and the subsequent payment to the Government whether in the period prescribed in the scheme or the prepayment would be on capital account, i.e., one has to determine the character of the subsidy in the form of sales-tax collection. Therefore, the present receipt must also be regarded as being of the same nature as the receipt in the Reliance Industries Ltd. s case (supra)/Ponni Sugar Chemicals Ltd. s case (supra) viz., a receipt on capital account. If a receipt is on capital account, then, the benefit if any obtained on its prepayment is also on capital account to which section 41(1) does not apply. He further submits that the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an incentive only to the extent of 15 per cent of the fixed capital investment, which is a material difference between that case and the Appellant s case, whereas the Appellant is entitled to an incentive to the extent of 85 per cent of the fixed capital investment. He further submits that an incentive of Rs. 18,93,750 on a fixed capital investment of Rs. 1,26,25,000 (15 per cent) can hardly be regarded as an incentive for setting up the unit and incurring the cost of fixed capital investment, whereas in the appellant s case there can be no doubt that the incentive was for setting up the unit in a backward area. Also, in Cartini India Ltd. s case (supra), the assessee did not at all argue that (1) the incentive was on capital account (in view of Reliance Special Bench and other decision referred to above) and (2) There was no benefit on payment of present value of the future liability. In Cartini India Ltd. s case (supra) (para 7 and 8), it has been held that the benefit is really the right to defer the sales-tax payment. 19. He further submits that even assuming whilst strongly denying that any benefit has been obtained by the Appellant, such benefit is not in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wadia [1995] 216 ITR 376 (Bom.) wherein it was held that if the assessee had done all he/she could to purchase the house but the purchase could not be finalized for no fault of his/her, the assessee could not be denied exemption under section 54. In that case the investment of a small sum of Rs. 8,000 out of the total sum of Rs. 2,59,238 in the house still had to be done, nevertheless the Hon ble Bombay High Court held that substantially the entire cost of construction had been paid by the assessee within the stipulated period and therefore deduction under section 54 was allowed. The present case stands on a much stronger footing where everything that the appellant could do was done and the process of conversion could not be completed because the sales-tax authorities did not issue the modified Entitlement Certificate. 20. He further submits that once the modified Eligibility Certificate is issued by the Implementing Agency, the sales-tax authority is bound by it and has no jurisdiction to question it. See Laxmi Industries v. State of Rajasthan [1995] 99 STC 584 (Raj.); Swastik Metal Works v. The State of Maharashtra [1998] 17 MTJ 332 (Mum. - Trib). In any event, from the corres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such converted loan liability. Therefore, the benefit, if any, on such prepayment is on capital account. Reliance was placed on the recent decision of Hon ble Jurisdictional High Court in S.I. Group India Ltd. case (supra), wherein on the similar facts and circumstances, it has been held that there was no remission or cessation of liability, one of the requirements spelt out for the applicability of section 41(1)(a) has not been fulfilled. Reliance was also placed on the decision of the Hon ble Bombay High Court in Mahindra Mahindra Ltd. v. CIT [2003] 261 ITR 501, wherein it has been held that section 41(1) does not apply to a benefit received on capital account. The said decision of the Bombay High Court has been followed by Delhi High Court in CIT v. Tosha International Ltd. [2009] 176 Taxman 187. The Department s SLP against the Delhi High Court s decision has been dismissed by the Supreme Court [See 319 ITR (Statutes) 7]. He, therefore, submits that the provision of section 41(1),does not apply to the facts of the present case and, therefore, the addition made by the Assessing Officer and sustained by the ld. CIT(A) be deleted. 22. On the other hand, the ld. DR while ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record the copy of audit report under section 44AB of the Income-tax Act, 1961 for the assessment years 2000-01, 2001-02 and 2002-03. He further submits that in column 13(e) of the Tax Audit Report, in respect of amounts not credited to the Profit and Loss A/c., being capital receipts, if any, the auditor has categorically stated Nil . This clearly shows that it is accepted position that sales tax receipts have not been treated as capital receipts. The assessee, in the proceedings before the Assessing Officer and ld. CIT(A) has admitted that the receipts on account of sales tax was a trading receipt, and the liability to the State Government on account of the sales tax was a trading liability. The returns of income for the assessment years, including the returns for the assessment years during the period the assessee was eligible for the benefits under the sales tax deferral scheme, were filed by the assessee voluntarily disclosing the above position. Even if the sales tax collected and the liability towards the sales tax incurred were not routed through the Profit Loss account of the assessee, it would make no difference since the sales tax collected would get offset by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to pay sales tax is indisputably a trading liability in respect of which an allowance or deduction has been made under section 43B . In this case also, the facts are identical and the assessee had availed benefits of sales tax deferral under the Package of Incentive Schemes of the Maharashtra Government. In view of the above, it is clear that the assessee has incurred a trading liability, which has been deferred under the Schemes. It is important to appreciate that the trading liability had been incurred and had accrued the moment sales were effected by the assessee. 27. Another argument which was taken by the ld. Counsel for the assessee was that the receipts on account of sales tax were capital receipts in view of the decision of the Hon ble Special Bench in the case of Reliance Industries Ltd. (supra), wherein the Tribunal had taken the view that the incentive received by the assessee on account of complete exemption from payment of sales tax under the 1979 Package of Incentive Scheme was capital in nature. Accordingly, the incentive by way of deferral of sales tax under the 1983 and the 1988 Package of Incentive Schemes, under which the assessee has claimed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as to which clause in the Schemes even suggests that the subsidies were given for the purpose of funding a part of cost of setting up of the factory or that the units became eligible/entitled for the sales tax incentive even before the commencement of the production. The only reason given by the ld. Counsel for the assessee in support of his claim is his reliance on decision of Hon ble Special Bench in the case of Reliance Industries Ltd. (supra). According to the ld. DR the findings given in the context of the 1979 scheme cannot hold good for the 1983 and 1988 schemes when nothing could be pointed out by the ld. Counsel that under the 1983 and 1988 Schemes, the subsidies were given for the purpose of funding a part of cost of setting up of the unit or that the units became eligible/entitled for the sales tax incentive even before the commencement of the production. In the absence of such conditions, the binding ratio of the Hon ble Supreme Court in the case of Sahney Steel Press Works Ltd. (supra) has to be necessarily followed. 28. According to the ld. DR the ratio of the said decision is that if subsidies are given to the assessee for assisting him in carrying out the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specific purpose for which each incentive/subsidy is given which will decide as to whether the subsidy is in the nature of a capital subsidy or revenue subsidy. The Hon ble Supreme Court has in para 8 of Sahney Steel Press Works Ltd. s case (supra) has held as follows: .... The sales tax upon collection forms part of public funds of the State. If any subsidy is given, the character of the subsidy in the hands of the recipient - whether revenue or capital - will have to be determined by having regard to the purpose for which the subsidy is given.... This has been demonstrated by the Hon ble Supreme Court by way of an example which is reproduced below : If the scheme was that the assessee will be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee. It will not be open to the Revenue to contend that the refund of sales tax paid on raw materials or finished products must be treated as revenue receipt in the hands of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idy/assistance is given which determines the nature of the incentive subsidy. Applying the above principles in the case of the assessee, there is no clause under the 1983 and 1988 Schemes, even suggests, that the sales tax subsidy was given for enabling the assessee to set up the industrial unit. In fact, the unit under these Schemes would become eligible for the sales tax incentives only after commencement of commercial production and after the unit was set up. Clause 2.1 of the 1983 Package of Incentive Scheme lays down that the Eligibility Certificate under Part I of the 1983 Scheme will be issued by the Implementing Agency after commencement of commercial production as may be determined by it, based on the totality of the documentary evidence led by the eligible unit in this behalf, as also such other information, details, etc. required/called for in connection therewith such as the date of power connection, electricity consumption bills over a period, first sale bill, excise license, extract of Excise Register or of Production Register, etc. Same is the position in clause 2.1 of the 1988 Package of Incentive Scheme. There is nothing in the Schemes that lays down any cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset. In the case of the assessee the maximum limit of the subsidy was also capped on the basis of fixed capital investments, which were capital assets. While the objective of the Scheme under which Sahney Steel Press Works Ltd. s case (supra) received the incentive was stimulating setting up and expansion of industries in the State, the objective of the Maharashtra Schemes under which the assessee received the incentives was dispersal of industries outside the Bombay-Thane-Pune Belt and stimulating setting up of the industries to the other underdeveloped and developing areas of the State. The object of the both Schemes were the same in substance. In the Maharashtra Schemes of 1983 1988 also, there is a system of yearly review to ensure that the units remain in normal production and were eligible for the incentive/subsidy. In the case of the assessee, the sales tax subsidy under the 1983 1988 Package of Incentive Schemes were not given to enable the assessee to set up the unit. It was given to the assessee to help it in the initial years to remain competitive vis-a-vis established units in the developed parts of the State which had better infrastructure facilities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds that ...it is a fact of life of the setting up of industries in the modern era that the cost of machinery and plant, etc. are generally defrayed by way of repayment of borrowings from out of the internal accruals of the industry during the course of its business operations... (para 31 of the order of Special Bench in the case of Reliance Industries Ltd. (supra). The above itself is sufficient to show that even the Tribunal was of the view that the cost of setting up of the industry has been met through profits earned by the assessee and out of internal accruals during the course of its day-to-day business operations. There was no requirement that the subsidy was required to be employed for the purpose of repayment of borrowings taken for setting up the unit. 31. The ld. Counsel for the assessee has also argued that the decision of the Special Bench in the case of Reliance Industries Ltd. (supra) has been approved by the Hon ble Bombay High Court in the case of Reliance Industries Ltd. (supra), wherein the Tribunal decision for a subsequent year following the decision of the Special Bench has been affirmed. According to the ld. DR the question as framed was not admitted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as per the ratio laid down by the Hon ble Supreme Court in Sahney Steel Press Works Ltd. s case (supra) and Ponni Sugars Chemicals Ltd. s case (supra). Further, the assessee has himself admitted and disclosed that the sales tax receipts as trading receipts, revenue in nature. For the same reason, the reliance of the assessee on Associated Capsules (P.) Ltd. s case (supra), which has simply followed Sterlite Opticals Technologies Ltd. s case (supra) would be of no help to the assessee for the reason given above. In any case, the question as to whether sales tax receipt is revenue or capital is of no consequence to the issue before the Bench since the assessee has itself admitted and disclosed the same as revenue receipt and, the assessments have also been completed, and have attained finality. 34. Another contention of the Ld. Counsel that since the prepayment benefits emanate out of the Package of Incentive Schemes, they should be held as capital is not tenable because prepayment of deferred sales tax liability is not part of the said Scheme. Rather, it is a part of a separate Scheme floated by the State Government and, in nature, was merely a business arrangement between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (CBDT) ........ for the purpose of Sales Tax Act. Again at page No. 12, the following submission of the assessee is noted :- Therefore, in the present case the sales tax liability though not paid, by virtue of amendment of Sales Tax Act, would be regarded as actually paid. On page No. 13 of the CIT(A) s order, the following submission of the assessee is noted in the first four lines: From the above it is clear that although the sales tax collected from the customers was a trading receipt, due to the deferral scheme the same is deemed to have been paid to the Government, thereby discharging the liability. All the above not only prove that the assessee was itself admitting that the sales tax receipts, even during the period when it was eligible for the deferral incentive, were trading receipts, and disclosed as such in its books of account as well as the returns of income filed by it, it had also claimed and was allowed deduction of the trading liability under section 43B in respect of the sales tax collected/accrued. The claim made now that the receipts on account of sales tax was in the nature of capital receipts, and that no deduction has been obtained for the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 6.13 onwards of the scheme. (iv) Modification in the Eligibility Certificate only signifies that instead of the benefits under the deferral scheme, the unit holder is now eligible for benefits under the interest-free loan Scheme. This does not in anyway mean that its deferred sales tax liability has changed into interest-free loan. (v) After all the formalities laid down in the procedure have been complied with and SICOM is satisfied that the application for provisional loan is in order, it will sanction sales tax loan equivalent to total amount of tax payable as shown in the returns and eligible for deferral (clause 6.16). He further submits that evidences on record and the submissions of the ld. Counsel leave no doubt that there is no such sanction order from SICOM/an Implementing Agency raising a loan liability equal to the total amount of tax payable but deferred. It is, therefore, clear that the deferred sales tax of the assessee has not been converted into interest-free loan. Further, the assessee has applied for opting into the interest-free loan scheme for the past period. Under the circumstances, it was required to comply with the procedures laid down in the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. In support the reference was made to clause 6.10 of the Resolution dated 21-7-1998 which states as follows: An eligible unit will be entitled to exercise option covering the past period i.e., the period prior to the date of option in part or in full as well as the remaining portion of the period covered by the Eligibility Certificate. But the option once exercised shall be final and binding on eligible unit and that it will not be open for the unit to change the option once exercised. Similarly, the option in respect of the conversion from the sales tax deferral into the interest-free loan scheme is to be exercised for the past period of eligibility in part or in full as well as the remaining period. This means that while for the past period during the eligibility period, the option can be exercised for a part of the past period or the full period, the same option should cover the remaining part of the eligibility period also. For the expansion unit covered under the 1988 Package of Incentive Scheme, assessee claims to have applied for the entire past period prior to the date of option but has not applied for the conversion for the remaining part of the period during w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nversion itself had not been completed, the question of the deferred sales tax liability getting converted into interest-free loan cannot arise. 39. The ld. DR further submits that during the course of his preliminary arguments the ld. Counsel for the assessee has contended that the fact that Department has allowed deduction under section 43B itself means that the deferred sales tax liability stands discharged and that it has been accepted that the said deferred tax liability has been converted into a loan. In this regard the ld. DR submits that allowing of deduction under section 43B under no circumstances even suggests that it has been accepted by the Department that the deferred tax liability has been converted into loan. The liability towards sales tax is to be allowed under section 43B of Income-tax Act, 1961 only when it is actually paid. However, by virtue of Circular No. 496, dated 25-9-1987 of the Central Board of Direct Taxes (CBDT), since, amendment has been made in the Sales Tax Act itself to the effect that sales tax deferred under the Scheme shall be deemed as actually paid, the statutory liability is treated to have been discharged for the purposes of section 43B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 1-10-1995 and again the proviso was substituted by the Maharashtra Act No. 20 of 2002, dated 4-5-2002 with effect from 1-5-2002. It is under this substituted proviso that the benefits of prepayment have been made available to the eligible unit which have opted for deferral scheme. Prior to substitution similar benefits were made available to dealers to discharge their loan liability under the 4th proviso. What emerges is that similar benefits were made specifically available in respect of loan liability also prior to 1-5-2002 and now the benefits of prepayment have been granted specifically to the eligible units for the discharge of their deferred sales tax liability. This shows that the benefits of the 4th proviso to section 38 of the Sales Tax Act is available only to the eligible units for discharging their deferred sales tax liability and not to dealers who have incurred loan liability, in view of the 4th proviso before its substitution by the current proviso with effect from 1-5-2002, which provided with the option of prepaying their loan liability separately under the same Act. 41. With regard to the ld. Counsel s plea that the assessee had been treating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of remission and cessation of such liability. For finding out whether the assessee has obtained any benefit or not, one need not travel beyond the Balance Sheets and accounts filed by the assessee. In Schedule P to the Notes to accounts (page No. 90 of the paper book) filed along with the return of income for the assessment year 2003-04 (during the period when the prepayment has taken place), it has been stated as follows: The company has, in response to a notification issued by the Government of Maharashtra, regarding Premature repayment of Deferral Sales Tax at Net Present Value , gone in for repayment of the total liability of Rs. 75,201,378 on 30th December, 2002 at Net Present Value. The total amount of payment made is Rs. 33,713,393. Based on the opinion obtained by the Company, it has taken the view that the balance of Rs. 41,487,985 arising out of the remission of the loan liability, being capital in nature, is credited to Capital Reserve. Perusal of the above leaves no doubt in mind that the assessee itself is of the view that there is a remission of the liability, albeit, a loan liability and that it has become richer by Rs. 4,14,87,985 which it has itself c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to pay to any one. It goes without saying that the assessee has benefited by Rs. 4.15 crores. The condition of section 41(1) is, therefore, satisfied. Assessee collected Rs. 7.52 crores from its customers on account of sales tax. This money was required to be paid to the State Government after the requisite number of years as per the terms of the 1983 and 1988 Schemes. The assessee also obtained deduction on account of Sales tax accrued under section 43B, thereby, reducing its income to that extent. Later on, instead of Rs. 7.52 crores which the assessee was required to pay, it paid only Rs. 3.37 crores and, the balance amount of Rs. 4.15 crores became his own due to the remission of this liability and the deeming provision of the 4th proviso to section 38 of the Sales Tax Act. The assessee immediately benefited by Rs. 4.15 crores which it appropriated to itself, and rightly reflected this benefit by crediting it to the Capital Reserve. This was real benefit, a commercial benefit and not some notional benefit. In fact, the said 4th proviso itself recognizes the fact that full liability is different and higher than the payment actually made since it deems that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it works out the present worth of its money available with the unitholders and, consequently, the NPV and offers a prepayment Scheme to the unit-holders. It is important to note that NPV does not mean the actual value of the asset (available in the form of deferred sales tax liability with the unit-holders), but the present worth of the said asset considering that it would be able to use the asset only at a later date while the requirement for the money is today. It follows then that the liability that has been prepaid by the assessee is not the actual liability, but only the present worth of the liability in the eyes of the State Government as on the date of prepayment. If the Government had not come out with the Scheme of prepayment, could the assessee have prepaid its liability of Rs. 7.52 crores by paying a mere Rs. 3.37 crores? The answer is no. 45. The Government came up with the Scheme of prepayment of the deferred sales tax liability by enacting the 4th proviso to section 38 of the Sales Tax Act. As per this, the unitholders were given an option to prepay the sales tax deferred liability at a reduced amount worked out as per the Rules prescribed by the Government. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions whereby the Revenue takes back what it has already allowed, if certain conditions come to pass and the assessee recoups something for which an allowance had already been made and deducted from his business income. Similar view has been held by the Hon ble Karnataka High Court in the case of Mysore Thermo Electric (P.) Ltd. v. CIT [1996] 221 ITR 504, in the case of Express Newspapers (P.) Ltd. v. CIT [1997] 227 ITR 325 (Mad.) and in the case of Solid Containers Ltd. v. Dy. CIT [2009] 308 ITR 417 (Bom.) and also in Asstt. CIT v. Cosmo Films Ltd. [2009] 28 SOT 353 (Delhi). The Income-tax Department has already allowed a deduction under section 43B to the assessee of sales tax liability of Rs. 7.52 crores. Although, the deduction under section 43B is to be allowed only on actually paid basis, the same was allowed in view of the amendment made by the State Government in the 3rd proviso to section 38 of the Sales Tax Act and Board s Circular. However, the assessee has finally paid only Rs. 3.37 crores as against the deduction of Rs. 7.52 crores claimed and allowed to it. The balance liability of Rs. 4.15 crores is not required to be paid by it, now or in future. The amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Govt. did not give up the money. It is only an early payment. One rupee today is more valuable than one rupee after ten years. Therefore, there is no benefit at all. There is no remission as the assessee has paid the amount as per State Government Scheme. It is an economic concept, commercial concept or common sense concept. 51. He further submits that the ld. DR also referred to pg.7, para 8 of the decision of the Bombay High Court in SI Group India Ltd. (supra), wherein it is stated that the liability of the assessee to pay sales tax was a trading liability. The issue before the court was whether there is remission or cessation of the sales-tax liability when the amount paid by the assessee to SICOM towards prepayment of the deferred sales-tax liability is not accepted by the Sales-tax authorities as a proper payment of the said sales-tax liability. The Court held that since the sales-tax authorities have not accepted the payment to SICOM as discharging the sales-tax liability; there was no remission or cessation thereof. Decision of the court is to be read for what it expressly decides and not as deciding something not before the learned Judges or what the learned Judges w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid. He submits that the aforesaid contentions of the ld. DR are misconceived. 54. The ld. DR s next contention was that several steps which were envisaged under the scheme for conversion of liability into loan were not taken and in this context reference was made to the various steps at page 233 onwards. There was no question of complying with paras 6.13 onwards as a formal modified Entitlement Certificate as per para 6.12 was not forthcoming. 55. The ld. DR also stated that the assessee in its correspondence with the Sales-tax authorities has referred to the liability as deferred sales tax liability and not as a loan. It is submitted that the distinction between deferred sales-tax liability and loan is relevant from the perspective of the Income-tax Act in view of the provisions of section 41(1). It is for this reason that the reference in the prepayment related correspondence is to deferred sales-tax liability. 56. The decision of the Hon ble Bombay High Court in the case of Solid Containers Ltd. (supra) is distinguishable from the assessee s case. The Hon ble High Court was concerned with a loan which was obtained for trade purposes and which was presently payable. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lized for trading purpose. In this connection, reference was also made to the following decisions of the Tribunal wherein the decision in Solid Container Ltd. case (supra) has been distinguished on the ground that the loan was utilized for capital purposes : Accelerated Freez Drying Co. Ltd. v. Dy. CIT [2009] 31 SOT 442 (Cochin) Cipla Investments Ltd. v. ITO [2009] 33 SOT 317 (Mum.) 57. He further submits that the ld. DR also contended that if the liability was converted into a loan, then the assessee could not have prepaid it since the 4th proviso does not speak of prepayment of loan but only provides for prepayment of deferred sales-tax liability. According to him 4th proviso applies to all cases where certificate has been granted for availing the incentives by way of deferment. Therefore, it is wide enough to cover case of deferment whether the same has been converted into a loan or not. If it is not so regarded it would mean that in a case where the liability has been converted into a loan the assessee would be worse off than where the liability has not been converted into a loan. It is to be noted that in 1995 the fourth proviso was inserted and provided for prepayme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efunded on the assessee succeeding in appeal. It was indisputable that such an amount would be assessable as the assessee had obtained an amount for which deduction had been allowed earlier. This was not a case of sales tax deferral and, therefore, reference was made to Chowringhee s case as holding that the sales tax is a collection of revenue account. Such is not the position where sales tax is collected under an incentive scheme and which has to be repaid later, hence not applicable. 61. Similarly, in Mysore Thermo Electric (P). Ltd. case (supra) there was a refund of the excise duty Collected which squarely falls within section 41(1). The argument was that the excise duty had not been specifically claimed as a deduction and kept a separate account was not accepted. Again in Express Newspapers (P.) Ltd. case (supra) cited by the ld. DR, an interest which was earlier allowed, was settled by paying a lesser sum. It was not a case of pre-payment of a future liability at its net present value which is the present case. To similar effect is the decision of the Supreme Court in Polyflex India (P.) Ltd. case (supra) again cited by the ld. DR. The assessee became entitled to refund of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Sales tax Act by which the earlier 4th proviso was substituted, which provides that where the NPV of deferred tax as may be prescribed was paid, the deferred tax was deemed, in public interest, to have been paid. We further find that the assessee following the aforesaid amendment under the Bombay Sales Tax Act, 1959 has made repayment of loan of Rs. 3,37,13,393 (Rs. 1,76,02,272 of 1983 scheme + Rs. 1,61,11,121 of 1988 scheme) on 30-12-2002 as per NPV of the deferred tax as prescribed under Circular No. 39T of 2002 of Trade Circular dated 12-12-2002 appearing at Pgs. 174-186 to the assessee s paper book. The assessee claimed Rs. 4,14,87,985 being the difference between the deferred sales tax Rs. 7,52,01,378 and its Net Present Value amounting to Rs. 3,37,13,393 as capital receipt, credited in the books of account of the assessee in the capital reserve account. However, the Assessing Officer keeping in view that the assessee has obtained the benefit of payment of whole amount of Rs. 7,52,01,378 as deduction under section 43B of the Act in view of CBDT Circular No. 496, dated 25-9-1987, therefore, he brought the difference of Rs. 4,14,87,985 to tax under section 41(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In Wolkem (P.) Ltd. case (supra), it has been observed that section 41 enacts adjustment provisions whereby the Revenue takes back what is has already allowed, if certain conditions come to pass and the assessee recoups something for which an allowance had already been made and deducted from his business income. The provision also fixes the year in which the recoupment, etc., is to be taxed. The first part of sub-section (1) contemplates loss, expenditure or trading liability is some former year for which allowance or deduction had been made in a bygone Assessment Year. The second part of sub-section (1) contemplates recoupment of such loss or expenditure or benefit in respect of such trading liability by way of remission or cessation thereof in some subsequent year. The word such appearing in the second part of sub-section (1) signifies that the recoupment or benefit must be in respect of the loss, expenditure or trading liability mentioned in the first part of sub-section (1). The payment with respect to the sales-tax or excise duty is normally an allowable item of business expenditure. 68. In CIT v. Bharat Iron Steel Industries [1993] 199 ITR 67 (Guj.) (FB). The Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e attracted the first requirement is that an allowance or deduction must have been made in the assessment for any year in respect of a loss, expenditure or trading liability incurred by the assessee. The liability of the assessee to pay sales tax is undisputedly a trading liability in respect of which an allowance or deduction had been made under section 43B. However, under clause (a) of sub-section (1) it is inter alia required that the assessee ought to have obtained some benefit in respect of such trading liability by way of remission or cessation thereof . This postulates that there must be a remission or cessation of the trading liability and that consequently a benefit must enure to the assessee .... 70. Thus to invoke the provisions of section 41(1), the following conditions must be fulfilled : (i) In the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee. (ii) The assessee must have subsequently (i) obtained any amount in respect of such loss or expenditure or (ii) obtained any benefit in respect of such trading liability by way of remission or cessation thereof. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny) imposed under sub-section (3) of section 53 and (e) any other dues under this Act : Shall be paid by the dealer or the person liable therefore into a Government treasury within thirty days from the date of service of the notice issued by the Commissioner in respect thereof : Provided that, the Commissioner may, in respect of any particular dealer or person and for reasons to be recorded in writing extend the date of payment or allow him to pay the tax or penalty or interest (if any) or the sum forfeited, by instalments but such extension or grant of instalment to pay tax shall be without prejudice to the levy of penalty, interest, or both : Provided further that, the Commissioner may, in respect of a dealer to whom an Eligibility Certificate has been granted extend the date of payments or grant a moratorium for payment of the dues or provide for payment of the dues thereafter in instalments, subject to such conditions as may be prescribed : Provided also that, notwithstanding anything contained in this Act or in the rules made thereunder but subject to such conditions as the State Government or the Commissioner may by general or special order specify, where a dealer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 scheme, 1983 scheme or 1988 scheme or the case may be electronic Scheme or 1988 scheme or 1993 packaging scheme of incentive, have been granted by virtue of Eligibility Certificate and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by the SICOM or other designated authorities, then such tax has been deemed, in the public interest, to have been paid. The fourth proviso provides that where an Entitlement Certificate has been granted to the eligible unit for availing of the incentives by way of deferment of sales tax etc. such eligible unit may in respect of the periods during which the said certificate is valid, at its option, prematurely pay in place of the amount of tax deferred by it an amount equal to the net present value of the deferred tax as may be prescribed and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid. [Emphasis supplied]. 74. Here it is also considered necessary to take note of the dictionary meaning of the net present value (NPV). 75. According to Business Dictionary.com, submitted by the ld. DR, the definition of NPV reads as under : Difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the 4th proviso which provides for payment of Net Present Value (NPV) of deferred taxes under the package scheme of incentives which is as under : Provided also that, notwithstanding anything to the contrary contained in the Act or in the rules or in any of the Package Scheme of Incentives or in the Power Generation Promotion, Promotion Policy, 1998, the Eligible unit to whom an Entitlement Certificate has been granted for availing of the incentives by way of deferment of sales tax, purchase tax, additional tax, turnover tax or surcharge, as the case may be, may, in respect of any of the periods during which the said certificate is valid, as its option, prematurely pay in place of the amount of tax deferred by it an amount, equal to the net present value of the deferred tax as may be prescribed, and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid. The State Government has by notification No. STR-12.02/CR-102/taxation-1 dated 16-11-2002, introduced rule 31D in the Bombay Sales Tax Rules, 1959 (BST Rules) laying down the procedure for determination of such NPV. The procedure for determination of NPV of the amount of deferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued with a view to speed up the industrial development of the State. The amount refunded had to be used specifically for development of the industry and could not be distributed as profits. The ITO assessed the receipts but the Tribunal held that the development subsidy was in the nature of a capital receipt and it was not also assessable under section 41(1). On a reference, it was contended on behalf of the assessee that the amounts were not of the nature of income at all and in any case it was a voluntary contributions : Held, (i) that it was not necessary for a receipt to constitute income that it must necessarily be in the nature of return. It may be that there is no consideration for the benefits extended to the assessee in terms of the G.O. in the common law sense. But it cannot be said that it is an act of generosity on the part of the State. The State is interested in its industrial development; it wants to attract industries to enhance the employment potential, economic prosperity and the income of the State. It is to attract new entrepreneurs that the Government had come forward with the said incentives. The payments could not be considered to be voluntary contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce given for the purpose of carrying on of the business of the assessee. The subsidies were of revenue nature and would have to be taxed accordingly. It has also been observed by Their Lordships (at placitum H page-267 of ITR ) : In view of the aforesaid, it is not necessary to discuss the point relating to applicability of section 41(1) of the Income-tax Act, 1961 in this case. 81. In Ponni Sugars Chemicals Ltd. case (supra) (headnote pg-393) : The assessee was a co-operative society running a sugar mill. During the relevant year in question, on account of economic factors, it was not economically viable to run new sugar factories and, due to high financial costs, financial institutions did not come forward to advance loans to the entrepreneurs of new sugar factories. The tempo of establishing new sugar factories received a serious setback. A committee appointed by the Government recommended that five possible incentives for making a sugar plant economically viable could be provided for, viz., capital subsidy, larger percentage of free sale of sugar, higher levy sugar price, allowing rebate on excise duty and remission of purchase tax. Following that report, schemes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the same is exempt as capital receipt. Therefore, the above decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case. 85. In Polyflex (India) (P.) Ltd. case (supra) the facts in brief are that (headnote) : In 1986 the assessee had paid excise duty on certain goods. Pursuant to the decision of the CEGAT a sum of Rs. 9,64,206 was refunded in September, 1988. Thereafter the excise department filed an appeal to the High Court and, on the appeal being dismissed, a petition for special leave to appeal to the Supreme Court; but the fate of that petition was not known. For the assessment year 1989-90, the Assessing Officer brought to tax the amount by invoking section 41(1) of the Income-tax Act, 1961, but the appellate authority and the Appellate Tribunal held that there was no remission or cessation of trading liability so long as the petition for special leave to appeal was pending in the Supreme Court. The High Court, on a reference, held that the amount was assessable to tax but observed, on the basis of counsel s argument, that the Tribunal ought to consider the question whether the excise duty was actually refunded to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal. On a reference a preliminary objection was raised on the ground that a similar question had been decided by the High Court : Held , (i) that the view taken by the Division Bench of the court in the case of CIT v. Wolkem (P.) Ltd. [1997] 228 ITR 129 was per incuriam as it was contrary to the three decisions of the Supreme Court and an earlier decision of the court. (ii) That the amount which was collected by the assessee against the excise duty or the sales tax was on account of business and as such was a trading receipt. Thus, it would fall in the income of the assessee. A separate account would not change the character of the initial collection. The amount after collection had neither been refunded to the customers nor paid to the Government. The addition of Rs. 1,45,752 was justified. 87. In Abhishek Industries Ltd. case (supra) (headnote pg-4) : Held (ii) That the benefit under rule 4A of the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991, accrued for a period of 10 years from the date of production and the quantum was fixed at 300 per cent of the fixed capital investment for category A industries and 150 per cent of the fixed capital i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in their hands. The assessing authority accepted this position whereas, the Commissioner of Income-tax took the view that the provisions of section 41(1) of the Act would clearly apply and that, consequently, the amount was liable to be included in their taxable income. This was confirmed by the Tribunal. On a reference: Held, that the Tribunal was justified in holding that the provisions of section 41(1) could be invoked to tax the refunds received during the accounting year relevant to the assessment year 1983-84 even when the part of excise duty was not claimed as expenditure in the profit and loss accounts of earlier years and the applicant had kept a separate account in respect of collection and payment of excise duty. 89. In Express Newspapers (P.) Ltd. case (supra) (headnote pg-326) : In the course of the assessee s business as a dealer in shares, the assessee borrowed moneys from various sharebrokers. The interest provided for in the accounts in respect of such borrowals was claimed as a deduction and was allowed as such in computing the income of the assessee in the earlier years. Subsequently, at the time of settlement of accounts with the sharebrokers, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s income and was assessable. 91. In T.V. Sundaram Iyengar Sons Ltd. s case (supra) : The Income-tax Officer found that for the assessment years 1982-83 and 1983-84, the assessee had transferred an amount of Rs. 17,381 to the profit and loss account of the company during the accounting period ended on March 31, 1982 (assessment year 1982-83), and an amount of Rs. 38,975 during the accounting period ended on March 31, 1983 (assessment year 1983-84). But these amounts were not included in the total income of the assessee. The sums were stated to be credit balances standing in favour of the customers of the company. Since these balances were not claimed by the customers, the amounts were transferred by the assessee to the profit and loss account. The Income-tax Officer was of the view that because the surplus had arisen as a result of trade transactions, the amounts had the character of income and had to be added as income of the assessee for the purpose of income-tax assessment. The additions were deleted by the Commissioner of Income-tax (Appeals), and this was upheld by the Tribunal. Held, that if a commonsense view of the matter were taken, the assessee, because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as on facts in treating the sales tax deferred liability amounting to Rs. 401.41 lakhs as profit and gain of business chargeable to income-tax as the income of the year under consideration in which such liability has been written off in the accounts and credited to the profit and loss account of the assessee inasmuch as the unilateral act of the assessee in writing off the said liability in its accounts by crediting the same to the profit and loss account is amounted to be a remission or cessation of the said liability within the meaning of section 41(1) of the Act read with Explanation 1 thereto. 93. In Cartini India Ltd. s case (supra) for the assessment year 2004-05 order dated 19-5-2009 the relevant facts are as under : The assessee company, during the previous year 1996-97, got registered under the 1988 package scheme of incentives as notified by the State Government of Maharashtra. Under the scheme, an eligible unit is allowed to defer the sales tax collections by converting the said sum into an unsecured loan repayable after the period of ten years from the date of conversion. It is pertinent to mention that the qualifying amount of the loan is based on the fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efund was received by the assessee, therefore, the assessee did not get any benefit in respect of such trading liability by way of remission or cessation thereof, and, therefore, the decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case. 95. In the following cases it has been held that section 41(1) is not applicable. 96. In Mahindra Mahindra Ltd. s case (supra) it has been observed and held (headnote pg. 502) : The assessee manufactured jeeps. The assessee filed its return for the assessment year 1976-77. In Part III of the return, the assessee showed an amount of Rs. 57,74,064 as cessation of its liability towards the American company. The Income-tax Officer came to the conclusion that with the waiver of the loan the credits represented income and not a liability. Accordingly, the Assessing Officer held that the sum of Rs. 57,74,064 was taxable under section 28 of the Income-tax Act, 1961. The Commissioner (Appeals) held that the sum of Rs. 57,74,064 was taxable as income under section 28(iv) of the Act as such benefit was obtained in the course of business and the monetary value of that benefit was income. Alternativel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above facts, section 41(1) of the Act was not applicable. 97. In Tosha International Ltd. s case (supra) the assessee was engaged in the manufacturing of black and white picture tubes. The assessee-company ran into huge losses and it ultimately became a sick company and registered with the BIFR. Under the one time settlement scheme, the financial institutions and banks required the assessee to pay 60 per cent of the amount due towards principal and waived the entire interest payment. There is no dispute with regard to the waiver of interest payment. The only objection raised by the Assessing Officer is with regard to the waiver of the principal amount to the extent of Rs. 10,47,93,857 which the assessee had directly credited to the capital reserve account. According to the Assessing Officer the assessee had derived benefit on the basis of either depreciation or utilising the working capital which would have formed part of the earlier years income. According to the Assessing Officer since the loans ceased to exist, this amounted to cessation of liability and, therefore, it has to be treated as an income. Consequently, the Assessing Officer added the said sum of Rs. 10.47 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t value amounting to Rs. 1.29 crores was treated as a capital receipt and was credited in the books of the assessee to the capital reserve account. The Assistant Commissioner of Income-tax, Range 3(3), in the assessment order for assessment year 2000-01 brought the aforesaid difference of Rs. 1.29 crores to tax under section 41(1) of the Act. The appeals filed by the assessee were dismissed by the CIT(A) as well as Tribunal. On further appeal it has been held (head note at pages 118 of 326 ITR) : Held, allowing the appeals, that the Sales tax Tribunal was of the view that the decision of the assessing authority and the Deputy Commissioner of Sales Tax not to give credit to the payment made to SICOM would have to be upheld, but left it open to the assessee to procure a valid document under the scheme which would be considered for the relevant period for the relevant deferred amount . The net result of the order of the Sales Tax Tribunal was to uphold the decision of the assessing authority declining to grant credit of the payment made by the assessee to SICOM towards discharge of the deferred sales tax liability. As a matter of fact, a notice of demand was issued under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. On further appeal by the revenue to the Tribunal, the Tribunal after considering the decision in the case of Sahney Steel Press Works Ltd. (supra), has held vide para 10.4 of the order as under : 10.4 From the above observations of the Hon ble Supreme Court, it is very clear that even the sales tax refund can be treated as a capital receipt in the hands of an assessee provided the same is granted to meet directly or indirectly the capital cost on the fixed assets and to help the entrepreneur in the establishment and expansion of the Industrial Unit. Thus, where the subsidy or incentive given by the Government for acquisition of an asset or for buying any new assets for completion of the project, such subsidy would be of capital nature. The Special Bench of the Tribunal in the case of Reliance Industries (supra) has considered similar views of Maharashtra Scheme and had also made a comparative analysis of Andhra Pradesh scheme and Maharashtra scheme. The judgment of the Apex Court in Sahney Steel and Press Works was also taken into consideration and then after analyzing all the material, it was found that the benefit availed by the assessee was on account of capital receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer did not apply. For attracting the provisions of section 41(1), the first requisite condition to be satisfied is that the assessee should have got the deduction or benefit or allowance in respect of loss, expenditure or trading liability incurred by it and, consequently, during any previous year, the assessee should have received any amount in respect of such loss, expenditure or trading liability by way of remission or cessation thereon. The remission would become income only when the assessee has claimed deduction earlier. In the instant case, the assessee had not got any deduction on account of acquisition of capital assets as the same had been reflected in the balance sheet and not in the profit and loss account and hence, applicability of provisions of section 41(1) was not there. The Commissioner (Appeals) s order to that extent was correct both on facts and on law. However, he had wrongly invoked the provisions of section 28(iv). It was the contention of the assessee that it had not done any trading activity nor shown any income as business income on the investments made. The finding of the Commissioner (Appeals) that the amount was received in the course of its busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities due to those banks in the previous year under appeal. The total loan that remained payable to the banks amounted to Rs. 3,486.03 lakhs. The loans were settled forever on payment of Rs. 2,450 lakhs and thereby the assessee company obtained the benefit of waiver of term loans amounting to Rs. 10.36 crores. This loan amount waived off by banks was credited by the assessee in the general reserve account. For the relevant assessment year, the assessee claimed that the waiver amount was not taxable in its hands inasmuch the said amount could not be treated as its income either under section 28(iv) or under section 41(1). The Assessing Officer did not agree with the assessee and brought the said amount to tax under section 28(iv). On appeal, the Commissioner (Appeals) held that section 28(iv) enables the Assessing Officer to charge the value of benefits or perquisite to tax and, therefore, the waiver amount received by the assessee was rightly brought to tax under section 28(iv). Held It is a trite law that the nomenclature given by an assessee to a particular account in its books of account is not the sole test to decide the real character of that account. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions of the Hon ble Apex Court [See in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198, Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC), K.P. Varghese v. ITO [1981] 131 ITR 597 (SC) and UCO Bank v. CIT [1999] 237 ITR 889 (SC)]. It is also settled law that the Court cannot add words to statute or read words into it which are not there vide Union of India v. Deoki Nandan Aggarwal [1992] Supp. 1 SCC 323. The similar view has been reiterated recently in CIT v. Tara Agencies [2007] 292 ITR 444 (SC). This being so we are of the view the first requirement of section 41(1) has not been fulfilled in the facts of the present case. 105. The other requirement of section 41(1) is that the assessee must have subsequently (i) obtained any amount in respect of such loss and expenditure or (ii) obtained any benefit in respect of such trading liabilities by way of remission or cessation thereof. In the case before us we find that the sales tax collected by the assessee during the years 1989-1990 to 2001-2002 amounting to Rs. 7,52,01,378 was treated by the State Government as a loan liability payable after 12 years in six annual/equal instalments. Subsequently pursuant to the amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 made by the assessee cannot be accepted as having been paid at NPV of the future sum of Rs. 7,52,01,378 towards discharge of full liability. It is settled law that the law does not contemplate or require the performance of an impossible act-lex non cogit ad impossibilia, vide Life Insurance Corpn. of India v. CIT [1996] 219 ITR 410 (SC). Further both the parties have submitted and agreed during the course of their arguments that the entries recorded in the books of account are not determinative of the nature of transaction vide Tuticorin Alkali Chemicals Fertizilers Ltd. s case (supra). Even assuming for the sake of argument that the assessee did not get modified Eligibility Certificate or the repayment of loan paid by the assessee at its NPV of future sum, then in that circumstances, merely because the assessee has passed necessary entires in its books of account, it cannot be held that there is any cessation or remission of liability. 107. The ld. DR has put great emphasis on the notes to the accounts which have been reproduced by us in para-43 appearing at page-43 of this order wherein the assessee itself has used the expression remission of the loan liability. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to B, and B, in satisfaction thereof, accepts, the sum of 2,000 rupees. This is a discharge of the whole debt, whatever may be its amount. (e) A owes B, 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with his creditors, including B, to pay them a composition of eight annas in the rupee upon their respective demands. Payment to B of 1,000 rupees is a discharge of B s demand. The above clearly shows that promisee may, inter alia, remit part of the promise or whole of the promise and even then the contract can be said to have been preformed. For example, illustrations (b) and (c) clearly show that when a large amount was due and only a smaller amount was paid, then, in view of the remission of the balance amount, the contract can still be said to have been performed and such debt would stand discharged. In the Commentary by Pollock Mulla, Thirteenth Edition on Indian Contract Act, the Learned Authors have observed at pages 1267 and 1268 as under : This section does not apply to cases where the whole contract has been supplanted by a new one, but to cases where the old contract subsists, and there is a voluntary remission of performance of some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has chosen to receive the money immediately which was receivable from 1-5-2003 to 1-5-2008. The amount of Rs. 3,37,13,393was actually paid to SICOM on 30-12-2002. Thus, the amount which was payable from 1-5-2003 to 1-5-2008, has been paid on 30-12-2002. Thus, it does not satisfy the condition of actual remission in praesenti as opined by the Learned Authors in the above commentary. It is a simple case of collecting the amount at net present value which is due later on and even the formula for collecting the net present value was also given by the SICOM and the amounts have been paid as per that formula. Therefore, such payment of net present value of the future liability cannot be, in our opinion, classify as remission or cessation of the liability so as to attract the provisions of section 41(1)(a) of the Income-tax Act, 1961. We are fully conscious that issue before us is regarding statutory liability and the above discussion and the provisions of the Indian Contract Act referred to by us in the above para relate to contractual liability. However, we have referred to these provisions just to understand the meaning of the expression remission for the purpose of deciding the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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